November29, 2018

The Removing Incentives for Outsourcing Act will eliminate an unfair incentive created by the new tax law that encourages companies to send jobs overseas in order to shelter profits in foreign tax havens

WASHINGTON- U.S. Senators Amy Klobuchar (D-MN), Tammy Duckworth (D-IL), and Chris Van Hollen (D-MD) introduced legislation to close a loophole created by the new tax law that encourages U.S. companies to move jobs and operations overseas in order to minimize their tax liability. The Removing Incentives for Outsourcing Act will eliminate an unfair incentive that allows U.S. companies to use excess foreign tax credits (FTCs) to shelter profits in tax havens.

“Our tax laws should encourage American companies to keep jobs in America, not send them overseas. But the new tax law didn’t stop worker layoffs in the United States—in fact, it actually created a terrible incentive to move jobs and operations abroad to take advantage of tax havens,” Klobuchar said. “That’s why Senators Duckworth, Van Hollen and I introduced a new bill to close that loophole and protect American workers.”

“Despite Republicans’ claims that they would bring jobs back to America, it’s clear the GOP Tax Scam is helping mega-corporations offshore jobs and costing middle-class taxpayers not only millions of dollars, but their livelihoods as well,” Duckworth said. “I’m proud to join Senator Klobuchar in introducing this bill to finally close this needless loophole that simply incentivizes corporations to avoid paying their fair share, and hope the Senate passes it quickly.”

“Instead of working to limit the offshoring of American jobs and manufacturing, the Republican tax scam made it easier and more profitable. It’s shameful, and it needs to be addressed without delay. The Removing Incentives For Outsourcing Act will make it harder to ship jobs overseas and require further study on this vital issue. It’s part of our commitment to making sure the tax code actually helps economic growth and working Americans – not just the wealthy and special interests,” Van Hollen said.

Under current law, a U.S. corporation may use foreign tax credits (FTC) to reduce U.S. tax liability on offshore profits by whatever amount the company paid in taxes in the country in which it earned the profits. While this makes sense on a per-country basis, the new law’s use of a blended or “global rate” provides a perverse incentive for companies to shift jobs and operations overseas in order to preserve the strategic value of tax havens.

The Removing Incentives for Outsourcing Act would fix this problem by:

Instituting a “per-country” minimum tax instead of a blended or “global rate” under current law. This change would remove the incentive for companies to shift U.S. jobs and physical operations overseas (to countries with tax rates similar to the U.S.) in order to preserve the value of using tax havens,

Eliminating companies’ ability to deduct 10 percent of their tangible assets before the tax rate on foreign income applies. This change would end the tax incentive created by the deduction to shift operations offshore and broaden the base of the tax on Global Intangible Low-Taxed Income (GILTI), and

Requiring the Joint Committee on Taxation (JCT) to conduct a study of various proposals for taxing overseas income and evaluate the options according to whether the proposal minimizes opportunities for avoidance of U.S. taxes and minimizes incentives for outsourcing American jobs.

“The recent tax overhaul was so riddled with loopholes that even the measures in the bill purporting to curb the gaming have loopholes themselves. With this legislation, Senators Klobuchar, Duckworth, and Van Hollen take direct aim at one of the biggest problems in the 2017 tax law,” said Clark Gascoigne, deputy director of the Financial Accountability and Corporate Transparency (FACT) Coalition. “The Removing Incentives for Outsourcing Act would make it harder for multinational corporations to artificially reduce their tax liabilities by shifting profits to tax havens like Ireland and Switzerland. Requiring that tax rates apply to multinationals' offshore profits on a per country basis is a necessary piece of any effort to end the incentive for offshore tax games. The legislation would also reduce the outrageous incentive in the Tax Cuts and Jobs Act that actually gives companies a larger tax break the more they move real operations and jobs offshore.”

"Senator Klobuchar’s Removing Incentives for Outsourcing Act is a crucial first step in repairing the damage wrought by the Tax Cuts and Jobs Act (TCJA) on our international tax system. The bill would significantly reduce the incentives for companies to shift profits and jobs offshore to avoid paying their fair share in U.S. taxes. In fact, a recent study by Professor Kimberley Clausing found that the per-country minimum rate approach proposed by Sen. Klobuchar would reduce tax avoidance by billions of dollars each year and is two-and-a-half times as effective as the global approach in the TCJA,” said Alan Essig, Executive Director of the Institute on Taxation and Economic Policy (ITEP).